Connectedness with commodities in emerging markets: ESG leaders vs. conventional indexes

This study investigates the dynamic connectedness of ESG Leaders and conventional equity indexes with commodities in emerging markets. Using data for emerging markets stocks from three regions (Asia, Europe, and Latin America), we compare the spillover effects from commodities to ESG and conventional indexes. Most of the transmission of shocks occurs between equity indexes, whereas spillover from commodities is limited. While there are similarities in the behavior of ESG Leaders and conventional index time series, slightly higher transmission is documented from commodities to conventional indexes compared to the ESG Leaders. Regional differences in connectedness are observed. However, from a portfolio management perspective, no notable differences can be seen between investing in either the ESG Leaders or conventional emerging market indexes when included in portfolios with commodities. [Display omitted] •Comparing the spillover effects from commodities to ESG and conventional emerging market equity indexes, most of the transmission of shocks occurs between equity indexes, whereas spillover from commodities is limited.•There is less transmission from commodities to ESG indexes compared to spillover from commodities to conventional equity indexes.•From a portfolio management perspective, the highest Sharpe ratios are noticed in portfolios based on minimizing dynamic connectedness.•Either a conventional or an ESG emerging market index can be included in a portfolio with commodities with a similar performance.